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Questions and Answers
What is the Keynesian perspective on the primary cause of recessions?
What is the Keynesian perspective on the primary cause of recessions?
- Aggregate demand being lower than potential output (correct)
- Inflation eroding consumer purchasing power
- Wage and price flexibility resulting in overproduction
- Excessive investment leading to market saturation
According to monetarists, what is the most effective tool for managing the economy?
According to monetarists, what is the most effective tool for managing the economy?
- Taxation strategies to boost consumer spending
- Government intervention through fiscal policy
- Regulatory measures to control businesses
- Monetary policy to manage the money supply (correct)
How do Keynesians view the concept of wage and price stickiness?
How do Keynesians view the concept of wage and price stickiness?
- It allows for adaptive pricing strategies that stabilize the economy
- It contributes to increased consumer confidence
- It causes slow adjustments, maintaining supply and demand gaps (correct)
- It leads to immediate market corrections
What role does fiscal policy play in Keynesian economics?
What role does fiscal policy play in Keynesian economics?
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What is a key concern of monetarists regarding monetary policy?
What is a key concern of monetarists regarding monetary policy?
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Study Notes
Keynesian Economics
- Recessions are caused by insufficient aggregate demand, leading to unemployment
- Wages and prices are "sticky" and do not always adjust quickly to changing demand
- Monetary policy has limited effectiveness in stimulating demand during recessions
- Fiscal policy, like government spending, is crucial to stimulate demand and boost employment
Monetarist Economics
- Focuses on the importance of monetary policy for economic management
- Monetary policy is the primary tool for addressing macroeconomic instability like inflation and recessions
- Level of aggregate demand is affected by expected profitability, which spurs investment
- Stable prices are a key goal, achieved through careful use of monetary policy
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